Budget 2026 tax reset focuses on compliance, certainty as penalties eased, STT raised: SBI analysis

The Union Budget 2026–27 has delivered a calibrated reset of India’s tax framework, focusing on predictability, reduced litigation and ease of compliance rather than headline-grabbing tax rate cuts. According to SBI’s Budget Analysis, the government has taken a conservative but reform-oriented approach, aligning tax proposals with its broader goals of fiscal discipline and medium-term growth.

The taxation proposals reflect a clear policy shift away from aggressive enforcement towards trust-based compliance. SBI noted that while revenue considerations remain important, the Budget’s underlying intent is to simplify tax administration, reduce disputes and create a more stable environment for taxpayers and investors alike.

Penalty overhaul aims to cut litigation

A key direct tax reform in Budget 2026 is the revamp of the penalty and prosecution framework under the Income Tax Act. The government has proposed integrating assessment and penalty proceedings into a single, common order. SBI said this structural change could significantly reduce procedural delays and long-running disputes that have burdened both taxpayers and the tax department.

The treatment of unexplained income has also been rationalised. The base tax rate on such income has been reduced from 60% to 30%, while penalties have been consolidated under misreporting provisions at 200% of the tax amount. Importantly, an immunity mechanism has been introduced, allowing taxpayers to avoid prosecution by paying an additional specified amount. SBI described this as a balanced approach that preserves deterrence while encouraging voluntary compliance.

New Income Tax Act from April 2026

The Budget has confirmed that the New Income Tax Act, 2025, will come into force from April 1, 2026. The new legislation aims to simplify language, remove redundancies and improve clarity, without altering the core principles of taxation. According to SBI’s analysis, this long-awaited reform is expected to reduce interpretational ambiguity and make the law more accessible to taxpayers.

MAT made final tax for corporates

On the corporate tax front, the government has proposed making Minimum Alternate Tax (MAT) a final tax, a move expected to bring greater certainty to companies. SBI noted that this could substantially reduce litigation related to MAT credit utilisation and ease compliance for corporates operating under different tax regimes.

Derivatives trading faces higher STT

In capital markets, the Budget has opted for targeted tightening. Securities Transaction Tax (STT) on futures and options has been increased, reflecting concerns over excessive speculation in derivatives markets. SBI said the move is aimed at tempering high-frequency trading activity without affecting long-term investors.

TDS, TCS rationalisation offers relief

The Budget has also delivered relief through rationalisation of TDS and TCS provisions. TCS on overseas tour packages has been reduced, while remittances under the Liberalised Remittance Scheme for education and medical purposes will attract lower TCS. SBI said these measures should improve cash flows for households and reduce compliance friction.

Stability in indirect taxes, gold duty unchanged

On the indirect tax side, SBI noted that the Budget avoids disruptive changes. Customs duties have been selectively rationalised to support manufacturing and clean energy sectors. Notably, gold import duty has been left unchanged, even as rising bullion imports continue to impact India’s trade balance, signalling a preference for stability over experimentation.

Overall, SBI’s Budget Analysis said the tax proposals in Budget 2026 prioritise certainty, compliance and dispute reduction. While immediate tax relief is limited, the reforms lay the groundwork for a more predictable and efficient tax regime over the medium term.